Best REIT ETFs

Real Estate Investment Trust Exchange Traded Fund 

Real estate is the oldest asset class. Along with stocks and bonds, it is one of the most commonly identified investment options identified by investors. REITs allow investors flexibility in gaining exposure to the real estate assets class exposure.

Current low interest rate environment has been favorable for REITs. Even with expected rise in rates and performance shouldn’t be impacted too badly from raise in rates.

REIT ETF List

Name Symbol
Vanguard REIT ETF VNQ
iShares Dow Jones US Real Estate Index Fund IYR
iShares Cohen & Steers Realty Majors Index Fund ICF
SPDR Dow Jones REIT ETF RWR
Schwab U.S. REIT ETF SCHH
First Trust S&P REIT Index Fund FRI
iShares Residential Index Fund REZ
PowerShares KBW Premium Yield Equity REIT Portfolio KBWY
IQ US Real Estate Small Cap ETF ROOF
iShares Real Estate 50 Index Fund FTY
PowerShares Active U.S. Real Estate Fund PSR
MSCI Real Estate Index ETF FREL
Direxion Daily Real Estate Bull 3x ETF DRN
ProShares Ultra Real Estate URE
DRV

 

Best REIT ETF

Vanguard REIT ETF (VNQ) is the largest listed US REIT ETF measured by total asset under management. It is a typical Vanguard product. Low cost, simple and one of the best option for passive investors that would like real estate exposure in the portfolio.

VNQ seek to track the performance of the MSCI US REIT Index which includes the largest REITs listed on the US exchange. The advantage of Vanguard REIT ETF is its low cost (at around 0.10%) and transparency in knowing what you own. Stock weights in the index are based on market capitalization adjusted for the follow factors:

  • Free float to be adjust based on the availability of stocks for investors.
  • Same criteria used to assess stocks in the broader market MSCI Index.
  • Regular reviews to ensure companies still meet criteria to be included in the index inline with ongoing corporate events.

Vanguard REIT ETF Performance

VNQ includes up to 130 US REITs. Buying VNQ is essentially owning the market. The sector breakdown of the fund below reinforce the diversification benefits as no specific REIT sector accounting for more than 30% of the ETF. Note VNQ owns REIT with underlying real estate assets rather financial assets like MREITs.

VNQ REIT ETF

VNQ REIT Sector Analysis

Retail REIT account for the largest portion of VNQ followed by Office and then Residential REITs.

Top 10 position of VNQ accounts for just under 40% of the ETF.

Rank Holdings
1 Simon Property Group Inc.
2 Public Storage
3 Health Care REIT Inc.
4 Equity Residential
5 Ventas Inc.
6 AvalonBay Communities Inc.
7 Prologis Inc.
8 Boston Properties Inc.
9 HCP Inc.
10 Vornado Realty Trust

The low cost and broad diversification of VNQ make it one of the best REIT ETF option for long term investors.

SPDR Dow Jones REIT ETF (RWR) tracks Dow Jones U.S. Select REIT Index which has around 90 REITs. Similar to VNQ it is market capitalization weighted (with adjustment for free float). On the surface RWR is very similar to VNQ.

SPDR Dow Jones REIT ETF (RWR)

The breakdown analysis of RWR shows it has exposure beyond standard commercial real estate REIT. For example it has significantly lower commercial real estate sectors like office and industrial assets which is offset by Hotel and other specialty sector. Interestingly it has limited exposure to data centre REITs.

Schwab U.S. REIT ETF (SCHH) is a lower cost version of the above REIT with fees just under 0.10% of AUM. SCHH also tracks Dow Jones US Select REIT Index

 

iShare REIT ETFs

As Vanguard above took the trophy for the best REIT ETF. iShares has a number REIT ETFs each designed to differentiate and aimed at specific sub group of investor and corresponding risk profile.

iShares Dow Jones US Real Estate Index Fund (IYR) is the second largest REIT ETF from the list above. Similar to VNQ it is designed as the broader REIT market index with over 1 10 REIT stocks in the fund. One should note however that total expenses is at around 0.45% vs 0.10% charged by VNQ.
Aside from investing in listed REITs. It is also important to note that 5% of the portfolio include real estate development companies.

Investors that are looking for concentrated bets on REITs can use iShares Cohen & Steers Realty Majors Index Fund (ICF). Unlike VNQ and IYR which has more than 100 REITs in the ETF. ICF aim to target REITs that are dominant in their respective sector. The goal of designing an ETF that only owns the best in their respective sector follows the idea of buying only the winners which more likely will outperform the sector.

Further up the portfolio concentration curve is the iShares Real Estate 50 Index Fund (FTY) which only include 50 of the largest listed REITs.
Similarly, for those that want to take specific REIT sub sector. iShares Residential Index Fund (REZ). REZ includes REIT stocks with direct residential exposure and is a sector specific REIT.

Small Cap REIT ETFs

PowerShares KBW Premium Yield Equity REIT Portfolio (KBWY) is a smart beta ETF. Traditional ETF weights stocks in the fund by market capitalization. Smart Beta ETFs uses factor or specific criteria aside from choosing companies because they are the biggest. KBWY uses a specific dividend yield based methodology in selecting the REITs to be included in the fund. The yield criteria ensures that KBWY has a specific yield target and it is aimed towards income focused investors.

It should be noted that the stocks it applies the criteria are mostly small and mid cap REITs with total holdings at around 30 to 40 REITs. The number of holdings do provide diversification benefits and dividend yield is at least 100 basis points spread higher than the large cap REIT ETFs listed above.

IQ US Real Estate Small Cap ETF (ROOF) also aim to provide completeness of portfolio REIT coverage by providing exposure to small cap REITs. It has around 60 holdings so theoretically a more diversified fund and dividend yield is on par with KBWY.

Leverage REIT ETF 

Using leverage REIT ETF can enhance returns as well as magnify losses. Currently Direxion Daily Real Estate Bull 3x ETF (DRN) and ProShares Ultra Real Estate (URE) provides 3x and 2x Leverage for REIT ETF investors.

For investors taking a leverage position, detail review of the underlying index is important to ensure the leverage ETF provide the required exposure. DRN aim to provide 3x the daily return of the MSCI REIT Index while URE tracks the 2x daily return of the Dow Jones Real Estate Index.

Inverse REIT ETF 

Similarly to 3x Leverage REIT ETF DRN. Direxion also has a inverse leverage ETF that tracks 3x the inverse return of the MSCI REIT Index. Bearish investors can use Direxion Daily Real Estate Bear 3x ETF if they have a negative view on the sector to limit risk from shorting individual REIT stocks.

Largest Listed REIT

For Investors that want direct exposure to REITs rather through using REIT ETFs. Below is the list of largest REITs.

Name Symbol
SIMON PROPERTY GROUP REIT INC SPG
AMERICAN TOWER REIT CORP AMT
PUBLIC STORAGE REIT PSA
EQUITY RESIDENTIAL REIT EQR
CROWN CASTLE INTERNATIONAL REIT CO CCI
HEALTH CARE REIT INC HCN
AVALONBAY COMMUNITIES REIT INC AVB
PROLOGIS REIT INC PLD
BOSTON PROPERTIES REIT INC BXP
VENTAS REIT INC VTR
HCP REIT INC HCP
VORNADO REALTY TRUST REIT VNO
GENERAL GROWTH PROPERTIES REIT INC GGP
WEYERHAEUSER REIT WY
HOST HOTELS & RESORTS REIT INC HST
ESSEX PROPERTY TRUST REIT INC ESS
SL GREEN REALTY REIT CORP SLG
REALTY INCOME REIT CORP O
MACERICH REIT MAC
KIMCO REALTY REIT CORP KIM
CBRE GROUP INC CBG
FEDERAL REALTY INVESTMENT TRUST RE FRT
ANNALY CAPITAL MANAGEMENT REIT INC NLY
AMERICAN REALTY CAPITAL PROPERTIES ARCP
DIGITAL REALTY TRUST REIT INC TRUS DLR
UDR INC. UDR
PLUM CREEK TIMBER COMPANY REIT INC PCL
JONES LANG LASALLE INC. JLL
AMERICAN CAPITAL AGENCY REIT CORP AGNC
DUKE REALTY REIT CORP DRE
EXTRA SPACE STORAGE INC. EXR
ALEXANDRIA REAL ESTATE EQUITIES IN ARE
IRON MOUNTAIN INC IRM
CAMDEN PROPERTY TRUST REIT CPT
REALOGY HOLDINGS CORP. RLGY
W. P. CAREY REIT INC WPC
KILROY REALTY CORP. KRC
OMEGA HEALTHCARE INVESTORS REIT IN OHI
REGENCY CENTERS REIT CORP REG
APARTMENT INVESTMENT & MANAGEMENT AIV
MID-AMERICA APARTMENT COMMUNITIES MAA
DDR CORP DDR
HOWARD HUGHES CORP. HHC
NATIONAL RETAIL PROPERTIES INC. NNN
STARWOOD PROPERTY TRUST REIT INC STWD
LIBERTY PROPERTY REIT TRUST LPT
SENIOR HOUSING PROPERTIES TRUST RE SNH
SPIRIT REALTY CAPITAL REIT INC SRC
LAMAR ADVERTISING COMPANY ORD CLAS LAMR
AMERICAN CAMPUS COMMUNITIES INC. ACC
CORRECTIONS CORPORATION OF AMERICA CXW
NORTHSTAR REALTY FINANCE REIT CORP NRF
BIOMED REALTY TRUST REIT INC BMR
HOSPITALITY PROPERTIES TRUST REIT HPT
LASALLE HOTEL PROPERTIES LHO
EQUITY LIFESTYLE PROPERTIES INC. ELS
TAUBMAN CENTERS REIT INC TCO
FOREST CITY ENTERPRISES INC. CL A FCE.A
HIGHWOODS PROPERTIES INC. HIW
RLJ LODGING TRUST REIT RLJ
OUTFRONT MEDIA INC OUT
DOUGLAS EMMETT INC. DEI
WEINGARTEN REALTY INVESTORS REIT WRI
HOME PROPERTIES INC. HME
CUBESMART CUBE
TWO HARBORS INVESTMENT REIT CORP TWO
RETAIL PROPERTIES OF AMERICA REIT RPAI
HEALTHCARE TRUST OF AMERICA REIT C HTA
SUNSTONE HOTEL INVESTORS INC. SHO
EQUITY COMMONWEALTH REIT EQC
EPR PROPERTIES EPR
STRATEGIC HOTELS & RESORTS INC. BEE
RAYONIER REIT INC RYN
COLUMBIA PROPERTY REIT INC TRUST CXP
GAMING AND LEISURE PROPERTIES REIT GLPI
SOVRAN SELF STORAGE INC. SSS
CBL & ASSOCIATES PROPERTIES INC. CBL
TANGER FACTORY OUTLET CENTERS INC. SKT
PEBBLEBROOK HOTEL TRUST REIT PEB
SUN COMMUNITIES INC. SUI
GEO GROUP REIT INC GEO
CHIMERA INVESTMENT CORP CIM
RYMAN HOSPITALITY PROPERTIES REIT RHP
MEDICAL PROPERTIES TRUST REIT INC MPW
POST PROPERTIES INC. PPS
DCT INDUSTRIAL TRUST REIT INC DCT
WP GLIMCHER INC WPG
MFA FINANCIAL INC. MFA
PIEDMONT OFFICE REALTY TRUST REIT PDM
COLONY FINANCIAL INC. CLNY
DIAMONDROCK HOSPITALITY CO. DRH
BRANDYWINE REALTY TRUST REIT BDN
HEALTHCARE REALTY TRUST REIT INC HR
PARAMOUNT GROUP REIT INC PGRE
CORPORATE OFFICE PROPERTIES TRUST OFC
XENIA HOTELS RESORTS REIT INC XHR
BLK CSH FND TREASURY SL AGENCY BLKFDS
AMERICAN HOMES RENT REIT CLASS A AMH
KITE REALTY GROUP TRUST REIT KRG
COUSINS PROPERTIES REIT INC CUZ
DUPONT FABROS TECHNOLOGY INC. DFT
LEXINGTON REALTY TRUST REIT LXP
URBAN EDGE PROPERTIES UE
ALEXANDER & BALDWIN INC. ALEX
INVESCO MORTGAGE CAPITAL INC. IVR
EASTGROUP PROPERTIES INC. EGP
WASHINGTON REAL ESTATE INVESTMENT WRE
HATTERAS FINANCIAL CORP. HTS
POTLATCH CORP. PCH
MACK-CALI REALTY REIT CORP CLI
REDWOOD TRUST REIT INC RWT
CYS INVESTMENTS INC CYS
ST. JOE CO. JOE
ARMOUR RESIDENTIAL REIT INC. ARR